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Shutterfly’s Strategy: A Conversation with CEO Jeff Housenbold (Part 7)

Posted on Wednesday, Mar 26th 2008

SM: Travel is a “context” that has great relevance for your business.

JH: We think about that opportunity a lot. What is nice about our business is our customers engage with us frequently throughout the year. We drive our business in a couple of ways. First, you have your typical holidays. You have Valentine’s Day, Easter, Mother’s Day, Father’s Day, and then kind of bigger holidays focused on gift giving like Halloween and Christmas and Hanukah with an emphasis on photo books and holiday cards. Secondly, there are life events that happen all throughout the year. People have babies, weddings, Sweet 16’s, lots of different events. Then there are everyday moments that become life’s memories. For example your baby’s first steps, the family vacation, personal achievements and celebrations. We are fortunate that it memories happen in lots of ways.

What we are doing through our business development efforts is finding partners in each of those respective verticals which have the same focus on the customer, innovation, design and quality. In retail, our partner became Target; 75% of our customers are female, 25-50 years old, college educated, brand conscious and brand loyal. They don’t care about technology other than how it makes life easier and faster. Target was the perfect partner.

SM: How is your Target relationship doing?

JH: It is doing well, and that is what their brand has stood for; females, design, customer centricity. The Target relationship has 4-5 dimensions. The first is for our customers we offer broader choice for the occasions where they need a picture in an hour or same day, they can order prints on Shutterfly and pick them up at Target. The second is we enable the Target.com photo site. All of their customers get the power and benefits and innovation of Shutterfly. The third thing is a co-marketing relationship. Target is doing a number of things for us in the photo center, you will see Shutterfly branding in pamphlets on the countertops and signage on the walls increasing awareness of all the things you can do with your memories. Target has also included us in their freestanding circular which goes out to more than 50 million households. We also do emails back and forth through our respective opt-in customer base. Additionally we are selling pre-paid cards that come in gift boxes.

SM: Has that been a big customer acquisition driver?

JH: What is interesting about our business is that 72% of our customers come directly to shutterfly.com. When you look at the totality of our relationships from Target, Amazon, Google and Yahoo, none of them account for a very large amount of our new customers, but in total these relationships are an important way to drive awareness and sales. A key element to our retail strategy is the ability to translate a virtual company into a physical product. For example you can touch and feel our books in-store to see our amazing quality. You can see what these books are about. For us in the early stages it’s about awareness not about how we drive a ton of commerce through retail or Target specifically.

When you look at the total available market, there are 113M households and 58 million have a digital camera and internet connectivity, and that number is rising. Only 6% of that 58 million have purchased a photo book, card or calendar to date. Will it ever be 100%? No, but what happens when it goes from 6% to 60%, and we are the market leader as the premium brand, driving the market. Our biggest competitive challenge is simply awareness that you can do these things with your images. Partners like Target, Sony and Amazon are really about building awareness and getting trial. Our marketing machine then takes over and we up-sell and cross-sell through our product assortment and merchandising capabilities.

SM: Have you seen a company called Groople?

JH: Yes.

SM: Are you partnering with them? They seem to be exactly in your sweet spot.

JH: Not to date, no. When you look at each one of the relevant verticals we have developed relationships with leading players. For example we have a relationship in the bridal space with David’s Bridal and in the $46M pet category we have gone out and done deals with Dogster and Catster. There are social networks and sites for everything… new moms and moms groups, pet lovers and travel, and sub groups off those.

SM: There are all of these vertical add networks coming together and they are trying to promote all kinds of cross pollination, there are all sorts of things to do if you have the ability to market something across those different blogs and small media. It can be really cool.

JH: Our focus has been on how to build a platform so it would be efficient for others to plug-in and partner with us. A good set of APIs will allow us to partner more effectively with other sites. You can then plug into a vertical add network and then let them distribute our online advertising more effectively based on the contextual relevance of the content and if we create a brand platform that allows you to stand for a category you can get leverage. Our focus is on storytelling then you can tell your story about surfing, you can tell your story about your vacation, you can tell your story about your kids first steps, we are really thinking about platforms and leverage across everything that we do.

This segment is part 7 in the series : Shutterfly's Strategy: A Conversation with CEO Jeff Housenbold
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